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100 cities ranked. Despite a slowdown, some values are still out of whack. Plus: where the bargains are.

By Les Christie, CNNMoney.com staff writer

July 26 2006: 5:25 PM EDT

NEW YORK (CNNMoney.com) -- After years of local home markets getting more and more overvalued, the trend has reversed, according to an analyis published this week.

Each quarter, Local Market Monitor, which provides research to the real estate industry, assesses 100 markets, comparing selling prices to "equilibrium" values. Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates.

The number of overpriced markets in the first quarter, defined as having a median home price more than 15 percent higher than equilibrium, fell by two to 38. In the prior quarter, the number of overvalued markets had climbed to 40 from 37.

Winzer says that 56 of the 100 markets he covers are now fairly priced, up from 54 last quarter.

The median home, however, is still overpriced by an average of more than 14 percent, Winzer judges, and homes in many markets are still way too high. This matters because those markets have much more potential for the kind of steep decline that could be disastrous for homeowners - and the local economy.

By Winzer's figuring, Santa Barbara is the most overpriced housing market in the nation (see table below). The median home there costs $567,300, 80 percent more than it should.

Naples, Fla. is a close second - the median home there will set a buyer back $417,400, 74 percent above equilibrium. Will Naples pass Santa Barbara as No. 1? Prices there rose 38 percent during the past year versus just 11 percent in Santa Barbara.

The nation's most undervalued real estate market is Fayetteville, N.C. At a median price of $175,800, the median house costs 21 percent below equilibrium.

Texas has some of the best bargains around. McAllen homes cost a median of $123,200, 19 percent undervalued. Among the bigger cities, Dallas (-14 percent), Houston (-14 percent) and San Antonio (-8 percent) all have great buys.

See the table for below for a look at all 100 markets that Winzer tracks.